Funding for North Carolina's Stewardship Program: Evaluating Current Costs, Estimating Future Expenditures, and Identifying a Proper Funding Model

Abstract

North Carolina’s Stewardship Program (NCDENR Stewardship) is responsible for maintaining mitigation sites and conserved lands held by the state of North Carolina. These sites have associated endowments, which are invested to generate funds for stewardship activities. Unfortunately, low interest rates and high inflation rates present challenges to the endowment funding model. Furthermore, in the case of NCDENR Stewardship, a need exists to identify comprehensive costs associated with stewardship activities along with cost drivers to better predict true funding needs. As such, my analysis seeks to identify all current costs, develop a working template to determine future expenditures, and propose an appropriate funding model that considers economic factors such as inflation and interest rates and the institutional capabilities of NCDENR Stewardship. In this study, a thorough literature review was first conducted to determine comprehensive costs applicable to NCDENR Stewardship. Next, 64 sites managed by NCDENR Stewardship were evaluated to determine cost drivers of monitoring activities. NCDENR Stewardship’s use of lump sum payments to outsourced land trusts resulted in land trusts explaining 59% of the deviance in annual cost. Regression analysis indicates that site characteristics such as perimeter length could be better incorporated into payment amounts to land trusts. Using my literature review, average site characteristics, and appropriate assumptions including a risk premium, annual costs per site are estimated to be $1,843 dollars. Two predictive models, one abbreviated and the other comprehensive, were developed to assist in determining future stewardship costs. Finally, my analysis concludes that a periodic fees model, rather than an endowment or hybrid model, currently represents the most viable funding model for NCDENR Stewardship. This is due to the model’s ability to adjust for changing costs and economic factors such as interest rates and inflation.